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I think the rumors got a bit ahead of the actual news on that one. The announcement talked about distributing java and Google toolbar, and working together on various projects including Star Office... No Google Office just yet. Also, I could be mistaken, but isn't OpenOffice a regular desktop app?
As for Palm, what I've heard them say in the past is that the smartphone won't replace the desktop PC because of inherent limitations - small screen and no full-size keyboard, and so not a lot of people will be creating spreadsheets and producing large documents on their Treos. But there are plenty of applications that have tremendous untapped potential for the mobile platform...
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